Seagate Technology Holdings plc — Q1 FY2022 Form 10-Q
Reporting period: 13 weeks ended October 1, 2021; comparison period is the 13 weeks ended October 2, 2020. Seagate supplies data-storage products and solutions, with HDDs as its principal products.
Financial performance and position
| Metric | Q1 FY2022 | Comparable period |
|---|---|---|
| Revenue | $3.115 billion | $2.314 billion |
| Gross profit / gross margin | $956 million / 31% | $596 million / 26% |
| Operating income / operating margin | $586 million / 19% | $251 million / 11% |
| Net income | $526 million | $223 million |
| Diluted EPS | $2.28 | $0.86 |
| Operating cash flow | $496 million | $297 million |
| Capital expenditures | $117 million | $111 million |
- Revenue increased $801 million year over year and $102 million from the prior quarter. Management attributed growth mainly to higher mass-capacity storage shipments. HDD capacity shipped was 159 exabytes versus 114 exabytes a year earlier; mass-capacity shipments rose to 132 exabytes from 86.
- Gross margin improved from 26% to 31% year over year and from 29% in the prior quarter. Management cited improved product mix and, sequentially, favorable pricing, partly offset by higher component and logistics costs. HDD price per terabyte was $18 versus $19 a year earlier.
- Cash and cash equivalents were $991 million at quarter-end, down $218 million from July 2, 2021. Current assets were $3.668 billion and current liabilities $2.889 billion. Operating cash flow was offset by $594 million of financing outflows, including $425 million of share repurchases and $153 million of dividends paid.
- Debt, net of issuance costs, was $5.136 billion; the balance sheet showed $245 million current and $4.891 billion long-term debt. No borrowings were outstanding under the revolving facility at quarter-end, and the company reported compliance with its credit covenants.
Changes, outlook and risks
- Revenue growth was concentrated in mass capacity: it represented 65% of revenue, up from 58% a year earlier; legacy-market revenue share declined from 34% to 27%. OEMs accounted for 74% of revenue, versus 69% a year earlier.
- Other expense, net was $53 million, compared with $30 million a year earlier and $10 million in the prior quarter. The year-over-year increase mainly reflected lower strategic-investment gains, higher interest expense, and losses related to discontinued hedge designations.
- Management expected supply-chain disruptions, shortages of certain materials, and higher logistics and operating costs to continue at least through the remainder of FY2022. Customer supply-chain and demand disruptions were also expected to continue, creating demand variation across end markets.
- No specific revenue or earnings forecast is stated in the filing. For FY2022, management expected capital expenditures at the low end of its long-term target range of 4%–6% of revenue and said available resources were expected to meet cash needs for the next 12 months.
- On October 14, 2021, after quarter-end, the company drew two $600 million term loans, used part of the proceeds to repay its $475 million existing term loan, and extended and increased its revolving facility to $1.75 billion, with maturity on October 14, 2026. The new term-loan proceeds could also be used to refinance or repay the 4.25% notes due March 2022; the filing does not state that those notes had been repaid.
- On October 22, 2021, the board declared a $0.70-per-share dividend payable January 5, 2022. The quarter’s declared dividend was $0.67 per share.
- Key risks include COVID-19-related supply and demand disruption, materials shortages and cost inflation, product pricing and demand variability, technology and competitive shifts, debt and covenant management, foreign-exchange exposure, and cyber incidents. Patent litigation and environmental matters are disclosed; the company describes the estimated loss in the Lambeth case as immaterial, while stating it cannot reasonably estimate the possible loss for the Nidec matter.
Important facts for investors to verify
- Whether mass-capacity demand and shipment growth continue, and whether the changing legacy-market mix affects pricing and profitability.
- Whether supply constraints and higher component and logistics costs persist or further pressure margins and cash generation.
- How the post-quarter term loans and the March 2022 notes are managed, and whether the company remains within credit-facility covenants.
- Whether the substantial share repurchases and dividends remain supported by operating cash flow and liquidity needs.
- Developments in the disclosed patent proceedings and any material change in estimated litigation or environmental exposure.